Could Bringing AI Into the Physical World Make It Profitable?
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Hey, What's News listeners. It's Sunday, June 15th. I'm Alex Zosola for The Wall Street Journal. This is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. On

On today's show, as businesses are finally starting to find ways to integrate artificial intelligence into their operations, developers are already working on future iterations of AI, including ways to embody the technology in the physical world. But the question remains, can the developers or companies make money from AI? One of the biggest stories in tech over the past six months is the huge investments tech companies are making in data centers needed to power artificial intelligence.

In January, Meta said it was allocating up to $65 billion this year. In the same month, Microsoft committed $80 billion. And in May, a data center startup that works with OpenAI secured almost $12 billion. These developers have big plans. They see one of the next steps in artificial intelligence as bringing it out of the cloud and into the physical world, like consumer devices and humanoid robots for manufacturing spaces.

But will this future phase of AI finally earn a return on investment for these users and developers? To dig more into the AI industry's future plans and whether they'll make AI profitable, I'm joined by Bell Lin, who covers AI and enterprise technology for The Journal. Bell, what do developers say is the next phase of AI? What's coming?

It's an interesting question because it feels like we're still in some of the earliest phases of AI where AI is still chatbots and you have to interact with chat GPT in order to get something back. You have to type in something. But the wave after chatbots is supposed to be AI agents. And those are technologies or software that can basically do things for you, like order a cab when you're arriving home from the airport or to make a restaurant reservation.

And then after that is physical AI and some tech watchers and certainly Jensen Huang, the CEO of Nvidia has talked about this phase as being where AI enters our physical world. And that has a lot of meanings, but in the corporate sense, it can mean that you're bringing automation to warehouses and bringing automation to factories. And then maybe in our daily lives, that's something like bringing humanoid robots to our homes.

So broadly, it's the idea that AI is entering our devices, whether in our homes and wearable devices that we wear or in the factories and the warehouses where our products and goods are made. I'm curious how that actually would work, because right now I think about AI as...

a chatbot, essentially. How does that then become something that is embodied in the physical world, whatever that may mean? There are some examples of wearable devices and these AI pins and devices that already came to fruition in this sort of first few phases of AI. There are things like AR and VR goggles that we've all heard of, the Apple Vision Pro. There's the MetaQuest, smart glasses like from Meta and Snap. And so there's

These are examples of AI that is embedded within these devices that we interact with, usually by voice or with gestures. Sometimes there's a more physical button that we might press or something that we might toggle. But the idea is really that AI gets embedded within the hardware itself rather than the human, the user, us being tied to some screen or some interface that we're used to seeing as a laptop or a phone. Who is leading this trajectory? Who's leading the pack?

What we've seen from OpenAI and Johnny Ives' company is this collaboration called IO, in which Johnny Ives and his team will serve as the creative brain behind this new device that OpenAI will release, this sort of family of devices. And they've been pretty

pretty tight-lipped about what the device will look like and what it will do, but they've said a few things like it'll be ambient, it'll be this third core device that you put on your desk after your MacBook and your iPhone. And so you could say that they're leading the pack because they're promising a lot of what...

has yet to come, but they have this really great heritage in the whole Apple ecosystem and the design aesthetics that Johnny Ive has put out. And also they have the models. They have the fantastic models that OpenAI has pioneered so far that are still state-of-the-art. So when you combine these two technology powerhouses right now, you get a bunch of promises, but they seem pretty promising.

You know, it sounds like there are a bunch of different kinds of applications, consumer-facing, more heavy industry, kind of something in between in the form of self-driving cars.

Do we have a sense of which of these might sort of come first and how the developers of AI are thinking about monetizing those phases? Monetization questions are always front and center because so many of these startups are funded by venture capital firms who need to see a return. And there's so much cash that's being injected into AI right now.

Some of the ways in which they're monetizing are in the software side on the models themselves. So you could sell on a word or bit basis, the ability to use OpenAI's models in other services and other technologies. In the wearable side, the salesman

selling of the hardware itself plus the software upgrades. But at this point, it's still really about adoption and figuring out which areas in the consumer world really stick. And then if we're talking about the heavy industry side, that's where ROI becomes a lot more important because you can shave a lot of costs by automating human labor away. And so that's where a lot of the warehouse and logistics companies are hoping to have an impact on their bottom lines. ♪

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Lots of companies have started using AI. According to a survey by McKinsey, 78% of companies say they use at least one AI function. So it seems like companies need to show they're integrating AI into their operations. Would you say this is an existential need for companies right now? Oh, absolutely.

There are really existential questions for categories of companies like law firms that have questioned what is the value of the billable hour? Because so much of what AI is really good at automating away right now is reading and summarizing through texts and being able to provide synthesis of answers. And that's kind of

early stage paralegal work. So if companies don't embrace AI, there's a question of will we still exist in 10 years time frame? Never mind questions of will we be using AI pins and devices? We need to embrace AI now or else we won't be around. So that kind of brings me back to this other existential question about physical AI. Who actually wants this?

Well, there is, if you look at examples of where physical AI exists now, I know we talked about warehouses and factories, but there are also great examples of where wearable headsets like the Apple Vision Pro and the MetaQuest and many others that have been around for a while have huge applications in the military, for instance, for training the armed forces and in training for military

surgeries in home services where you have skilled trades like plumbers and air conditioning technicians learning how to build the physical engines that keep homes running, as well as jet engines, technicians learning and figuring out how to troubleshoot them. So there's great examples of where physical AI and augmented reality, which is a really

early version of bringing AI into the real world already have a lot of value. And so you might see more acceleration in areas where AI in the real world are already having an impact. But once it becomes much more useful, you could see things like basic knowledge work becoming a

The ability to stream someone's virtual presence into a meeting room makes it that much better. And there's no longer a need to have an in-person meeting. One of the things that is in the news cycle about AI right now is just how unbelievably expensive it's been. Companies are shelling out billions of dollars to build these data centers because they are doubling down on AI being the future technology.

Is there enough demand in all of these different applications for physical AI that we've talked about that will bring down those costs of the data centers or will they just keep skyrocketing?

A lot of this goes back to the AI models and the software layer, because as they become more efficient, then the promise is that they require a lot less GPU compute and power going into the data centers. And so when the models become more efficient themselves, even though they are quite large and unwieldy, they can be trained much more efficiently. From that point of view, costs will certainly start to come down in terms of the infrastructure.

But at the same time, other costs will need to come down as well. The cost of hardware in a really general sense is still quite high. The chips required to basically power Apple Vision Pro or to power a humanoid robot or to power self-driving cars, those are not quite commoditized. They're still quite expensive. So as developers make these devices and software and as companies figure out how to use them,

Whose responsibility is it going to be to figure out how to actually make money off of this?

Yeah, a lot of the AI developers and the AI startups will be hard pressed to come up with an answer on how to actually monetize what they're building. Right now, a lot of them are funded by VC dollars, are backed by research or other types of grants and funding. And so there will be this sort of inflection point where either their technologies, their devices, their robots, their cars catch on consumers or they don't.

Because as we look at some of the other waves of technology that were funded by VC dollars, like the Ubers and the Lyfts of the world, there's this limited timeframe in which they can be funded by venture capital dollars until they have to show their metal. And how about for the companies using the products?

For the companies, that's already a really pressing question. ROI has been challenging since the dawn of the chat GPT AI era that we're in now about three years ago. Companies have been investing heavily in AI models and AI technologies, but there's really not a clear way to

determine whether or not they're paying off. So you could say that productivity of workers has gone up, but it's hard to measure. You could say that sales have gone up, but that's also hard to measure. So measuring AI's value has been a question for tech executives for the past several years and continues to be. But there's a lot of economic incentives that are aligned in trying to make sure that

that the AI companies are profitable and that companies are saving on the bottom line and generating top line revenue that the market forces kind of end up working out in some way. That was WSJ reporter, Belle Lin. Thank you so much, Belle. Thanks for having me.

And that's it for What's New Sunday for June 15th. Today's show was produced by Charlotte Gartenberg with supervising producer Michael Kosmides and deputy editor Chris Zinsley. I'm Alex Osola, and we'll be back tomorrow morning with a brand new show. Until then, thanks for listening.

Isn't home where we all want to be? Reba here for realtor.com, the pros number one most trusted app. Finding a home is like dating. You're searching for the one. With over 500,000 new listings every month, you can find the one today.

Download the Realtor.com app because you're nearly home. Make it real with Realtor.com.